Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 220 - 228)



  220. When did they ask you?
  (Mr Evans) It was just a simple clearance procedure, "Do you mind us quoting your evidence?".

  221. So do you think it was a late, last-minute decision?
  (Mr Evans) No, I do not think it was, it was just a clearance of whether they could quote our submission. Having said that, we supported the original PayCom proposals because they seemed very well argued. Having said that, I do not think we have a particular problem with moving to the OFT. There are always difficulties in establishing new bodies. The possibility of putting PayCom in the OFT has some major advantages in the sense that you have a regulator which is not a sector specific one and so is much more able to take a more holistic view of competition. That is key for the OFT role. Also, one of the advantages the OFT has is that it has both a consumer remit and a competition remit. So the possibility of cross-fertilisation and cross-thinking is much greater within a more general regulator. We are certainly not enormously disappointed in the idea that it goes to the OFT, because the OFT itself is becoming better at its role of enforcing competition.
  (Ms Childs) Clearly the OFT will have to prove itself. The potential downside is that they have so many other tasks they will not have the time, the inclination or the resources to enforce what is required under the terms of PayCom effectively. Although we think there are some benefits to going to the OFT, we think the jury is still out on whether they are actually going to prove it. We are encouraged by the fact that John Vickers has made various statements in relation to recognising the importance of consumers and vigorously protecting their rights, but we do have that caveat.
  (Ms Johnstone) Our view is exactly the same. We are not opposed to the OFT having this role. We shall have to see how it is going to be carried out. With the details we have, we are not in a position to say precisely whether it is going to work for consumers.

  222. Cruickshank's argument for a separate PayCom regulator was that it would give a sustained dynamic focus on the sector. In your evidence this morning you have been explaining how various practices are adopted to try to get more money out of the consumer. Do you not think that really does suggest the need for a very unique regulator who does not have other responsibilities, because we are talking about a dynamic thing which is changing all the time? Let us face it, the banking industry is a very large industry, larger than all the other industries which have their own separate regulators. Is there not a prima facie case for a PayCom separate regulator?
  (Ms Childs) It would be a different question if they were regulating the whole of the banking sector. The remit of PayCom is quite narrow and does involve an understanding of competition dynamics. The OFT, for example, has oversight of mergers, which we have not spoken about, which are equally important in the banking sector. They have some experience. I agree with you that it is not clear cut. From our perspective we want something that works. We are encouraged by the fact that the OFT has some experience in this area, but we do have some qualms about whether they will have the resources and the commitment to do it. We would be looking for the OFT to show that they would have the resources to do it.

  223. What sort of benefits would you expect for the consumer from this new regulatory role now proposed to be given to the OFT?
  (Ms Childs) The initial benefits are indirect because PayCom are focusing on the wholesale level rather than directly on the retail level. We would hope that in terms of assisting competition in transmission between banks and allowing newer entrants to come in and looking at the terms under which they can come into that market, that would then flow through. There are also links between the information we can get about costs, which can be publicised, which would assist in putting pressure on banks at the retail level. It is not a direct regulation of the retail sector, it is a more indirect one. That was Cruickshank's focus. He was looking at actually bringing in new entrants. We think that there is benefit in bringing in new entrants but that is not the way to solve all of the issues in the banking sector because there are lots of people out there selling products. You need to be looking at ways to make consumers switch and some of the other barriers to their moving and issues around product service, none of which will actually be dealt with by PayCom.
  (Ms Johnstone) This is indirect and it is not the retail market. One of the things we shall be looking for in particular is much greater price transparency than we currently have. If PayCom can deliver that, in a sense that will help unravel some of the problems we are tackling.

  224. In this area the Government also changes and moves away from Cruickshank's proposals for a class licensing system in relation to the wholesale market. Are you worried that it is going to go for more general sector specific rules rather than a class licence based system which would have been a quite innovative way of regulating the banking system?
  (Ms Childs) The bottom line is that we want something which works and the class licence system was a useful idea in the sense that it gave some freedom but set clear rules rather than relying on things after events. We have some disappointment about that.


  225. May I return for a second to cash machines? Could you tell us what the situation now is? When we originally had representatives of four banks in front of us it was very much a moving scene, indeed the policy changed in front of our eyes. You have been watching this. Could you tell us?
  (Ms Childs) I must apologise but I do not have the exact details in front of me. I am happy to send you a separate note on this.[2]

  226. What is your overall position on charges?
  (Ms Childs) Our overall position is that if there are going to be charges they have to reflect costs and consumers should not be double charged.

  227. There is a case for charges, but they have to be related to costs.
  (Ms Childs) Yes, but they have to be open and they have to be transparent.
  (Ms Johnstone) We would concur with that.

  228. What about when somebody from one bank uses a cash machine from another bank? Should there be extra charges there?
  (Ms Childs) That is a matter between the banks rather than necessarily for the consumer to pay directly. Then it is a question for the individual bank as to how they choose to recover that cost. Clearly it is an overhead for them but I do not feel that it is something which should be directly charged to consumers. It is a cost of business.

  Chairman: Thank you very much indeed for your responses.

2   See p 59. Back

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